Thursday of last week Dell (see chart here) announced that it would be restating four YEARS of previous accounts because the numbers had been manipulated at the request of senior executives. The company admitted that account balances were reviewed by senior exexcutives with the goal of seeking adjustments to meet quarterly objectives. The Dell CFO said that the company had found evidence of fraud in revenue transactions that would have to be completely redone. (see article here)
This shows the power of Lock-in when an organization finds itself stuck in the lifecycle Swamp. The business is Locked-in to its Success Formula, but a market shift causes the results to no longer be as good as they used to be. Although the overall market continues to grow, the company doesn’t do as well. From the prosperity of the Rapids leaders find themselves fighting to find faster water as growth, for them, slows. And in most companies, Dell being stereotypical, the answer is to try working harder, doing more, and seeking to be somehow cheaper in order to save the poorly performing Success Formula. When the results just don’t meet expectations, huge pressure is felt to Defend the Lock-ins & Extend the Success Formula. And, in too many cases, under great pressure to perform executives will resort to financial machinations. Sometimes these accounting tricks are completely legal. But, sometimes pressure causes leaders to falsify records in order to preserve the Success Formula.
As we saw during the infamous trials at WorldCom and Enron, (and more recently Tyco and Conrad Black) leaders vocally proclaim all innocence. They become so blinded by their Lock-in, and the need to protect the Success Formula which previously served them and investors so well, that they slowly inch toward taking more dangerous acts. When they start realizing they cannot meet objectives simply by operating the Success Formula, they look for more creative methods.
While some few execs will likely get blamed for this 4-year fiasco, in reality Michael Dell and the existing executives are equally to blame. They remained so Locked-in and unwilling to consider modifying the Success Formula that they created the environment which bred this problem. Dell has never maintained White Space, nor has it ever tried to migrate to new solutions for market Challenges. Dell kept pressuring management to do more, better, faster, cheaper. And with that approach he created a no-win environment for divisional presidents and vice-presidents. They didn’t have the option of using White Space to find a better solution, and with that avenue cut off they either fell on the sword of failure or they had to find some way to keep the emporer feeling he was wearing beautiful clothing.
I blogged months ago that Dell was stuck in the Swamp. Now we know it is. A 4-year (I still can’t believe it) ongoing accounting falsification goes to show just how deeply the company is stuck. It takes a significant commitment to Lock-in to overlook something being wrong for that long. And Dell’s current answer is that the errors were not really significant. Give me a break – any time someone can get away with chicanery for 4 years it’s a significant problem. And just by taking that point of view Dell reinforces its intent to remain Locked-in and stuck in the swamp. The company still shows absolutely no indication it will ever set up some White Space to evolve forward to a better competitive Success Formula.
Once stuck in the Swamp fewer than 7% of companies ever get out alive. Most fight off the aligators and mosquitos only so long before being pulled into the Whirlpool of failure. Dell looks to be far too deep in the Swamp to ever get out. And that’s too bad for a lot of suppliers, employees, customers and investors.